2011 PPG Industries Annual Report and Form 10K

2,400 views

Published on

2011 PPG Industries Annual Report and Form 10K

Published in: Economy & Finance, Business
0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total views
2,400
On SlideShare
0
From Embeds
0
Number of Embeds
3
Actions
Shares
0
Downloads
18
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide

2011 PPG Industries Annual Report and Form 10K

  1. 1. 2011PPG Annual Reportand Form 10-K
  2. 2. Company Profile PPG Industries’ vision is to continue to be the world’s leading coatings and specialty products company. Through leadership in innovation, sustainability and color, PPG helps customers in industrial, transportation, consumer products, and construction markets and aftermarkets to enhance more surfaces in more ways than does any other company. Founded in 1883, PPG has global headquarters in Pittsburgh and operates in more than 60 countries around the world. Sales in 2011 were $14.9 billion. PERFORMANCE COATINGS n OPTICAL AND SPECIALTY MATERIALS n n AEROSPACE. Leading manufacturer of transparencies, n OPTICAL PRODUCTS. Produces optical monomers electrochromic cabin window shades, sealants and coatings, and coatings, including CR-39®, Trivex® and Tribrid™ lens and provider of surface solutions, packaging, and chemical materials, high performance NXT® sunlenses, optical sheet management services, delivering new technologies and transparencies, photochromic dyes and Transitions® solutions to airframe manufacturers, airlines and maintenance photochromic eyeglass lenses. providers for the commercial, military and general aviation industries globally. Also supplies transparent armor for n SILICAS. Produces amorphous precipitated silicas for tire, military vehicles. battery separator and other end-use applications and Teslin® substrate used in applications such as radio frequency n ARCHITECTURAL COATINGS — AMERICAS AND identification (RFID) tags and labels, e-passports, driver’s ASIA PACIFIC. Produces paints, stains and specialty coatings licenses and identification cards. for the commercial, maintenance and residential markets under brands such as PPG Pittsburgh Paints®, PPG Porter COMMODITY CHEMICALS n Paints®, PPG, Master’s Mark®, Renner®, Lucite®, Olympic®, n CHLOR-ALKALI AND DERIVATIVES. Produces chlorine, Taubmans® and Ivy®. caustic soda and related chemicals for use in chemical n AUTOMOTIVE REFINISH. Produces and markets a full manufacturing, pulp and paper production, water line of coatings products and related services for automotive treatment, plastics production, agricultural products, and commercial transport/fleet repair and refurbishing, light pharmaceuticals and many other applications. industrial coatings and specialty coatings for signs. GLASS n n PROTECTIVE AND MARINE COATINGS. Leading supplier of corrosion-resistant, appearance-enhancing coatings for n FIBER GLASS. Manufactures fiber glass reinforcement the marine, infrastructure, petrochemical, offshore and power materials for thermoset and thermoplastic composite industries. Produces the Amercoat®, Freitag®, PPG High applications, serving the transportation, energy, Performance Coatings and Sigma Coatings® brands. infrastructure and consumer markets. Produces fiber glass yarns for electronic printed circuit boards and specialty applications. INDUSTRIAL COATINGS n n FLAT GLASS. Produces flat glass and coated glass that n AUTOMOTIVE OEM COATINGS. Leading supplier of is fabricated into products primarily for commercial coatings, specialty products and services to automotive, construction and residential markets, as well as the solar commercial vehicle, fascia and trim manufacturers. Products energy, appliance, mirror and transportation industries. include electrocoats, primer surfacers, basecoats, clearcoats, liquid applied sound dampeners, bedliner, pretreatment chemicals, adhesives and sealants. Glass n INDUSTRIAL COATINGS. Produces coatings for appliances, (7%) agricultural and construction equipment, consumer Commodity products, electronics, automotive parts, residential and Chemicals commercial construction, wood flooring, joinery (windows and (12%) doors) and other finished products. Performance Coatings n PACKAGING COATINGS. Global supplier of coatings, inks, Optical & (31%) Specialty Materials compounds, pretreatment chemicals and lubricants for metal (8%) and plastic containers for the beverage, food, general line and specialty packaging industries. Architectural Coatings - EMEA ARCHITECTURAL COATINGS – EMEA n (14%) Industrial2011 PPG INDUSTRIES ANNUAL REPORT n ARCHITECTURAL COATINGS — EMEA (Europe, Middle Coatings East and Africa). Supplier of market-leading paint brands (28%) for the trade and retail markets such as Sigma Coatings®, Histor®, Brander®, Dyrup®, Bondex®, Balakryl®, Boonstoppel®, Rambo®, Seigneurie®, Penitures Gauthier®, Guittet®, Ripolin®, Johnstone’s®, Leyland®, Dekoral®, Trinat®, Hera®, Primalex®, 2011 Segment Net Sales Prominent Paints® and Freitag®. Contents 2011 Financial Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Financial and Operating Review . . . . . . . . . . . . . . . . . 32 Letter From the Chairman . . . . . . . . . . . . . . . . . . . . . . . . . 2 Five-Year Digest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86 Management’s Discussion and Analysis. . . . . . . . . . . 17 PPG Shareholder Information. . . . . . . . . . . . . . . . . . . . 87
  3. 3. 2011 Financial HighlightsAverage shares outstanding and all dollar amounts except per share data are in millions. Net Sales Net Income Earnings per Share Dividends per Share 20,000 1,200 8 2.5 12,220 15,849 12,239 13,423 14,885 834 538 336 769 1,095 5.03 3.25 2.03 4.63 6.87 2.04 2.09 2.13 2.18 2.26 7 1,000 2.0 15,000 6 800 5 1.5 10,000 600 4 3 1.0 400 5,000 2 0.5 200 1 0 0 0 0.0 FOR THE YEAR 2011 CHANGE 2010 Board of Operating Net Sales Net Income* $ 14,885 $ 1,095 11 % 42 % $ 13,423 $ 769 Directors Committee Earnings per Share* ‡ $ 6.87 48 % $ 4.63 Charles E. Bunch Charles E. Bunch* Chairman and Chief Executive Officer, Chairman and Chief Executive Officer Dividends per Share $ 2.26 4 % $ 2.18 PPG Industries, Inc. J. Rich Alexander* Return on Average Capital 16.6 % 29 % 12.9 % Stephen F. Angel Executive Vice President Chairman, President and Chief Operating Cash Flow $ 1,436 10 % $ 1,310 Executive Officer, Praxair, Inc. Pierre-Marie De Leener* Nominating and Governance Committee; Executive Vice President Capital Spending $ 446 31 % $ 341 Technology and Environment Committee Glenn E. Bost II* James G. Berges Sr. Vice President and General Counsel Research and Development $ 445 9 % $ 408 Partner, Clayton, Dubilier & Rice, LLC, and retired President, Emerson Electric Co. David B. Navikas* Average Shares Outstanding ‡ 159.3 -4 % 165.9 Audit Committee; Nominating and Sr. Vice President, Finance, Governance Committee and Chief Financial Officer Average Number of Employees 38,400 — % 38,300 Hugh Grant Richard C. Elias Chairman, President and Chief Executive Sr. Vice President, AT YEAR END 2011 CHANGE 2010 Officer, Monsanto Company Optical and Specialty Materials Nominating and Governance Committee; PPG Shareholders’ Equity $ 3,249 -11 % $ 3,638 Officers-Directors Compensation Committee Michael H. McGarry Sr. Vice President, Commodity Chemicals Victoria F. Haynes * Includes in 2010 an aftertax charge of $85 million, or 51 cents per share, representing a reduction in a deferred tax President and Chief Executive Officer, Cynthia A. Niekamp asset due to tax law changes included in health care legislation enacted in March 2010 that included a provision to RTI International Sr. Vice President, Automotive OEM Coatings Audit Committee; Technology reduce the amount of retiree medical costs that will be deductible after Dec. 31, 2012. and Environment Committee Viktoras R. Sekmakas ‡Assumes dilution. Michele J. Hooper Sr. Vice President, Industrial Coatings, and President, PPG Europe President and Chief Executive Officer, The Directors’ Council Aziz Giga Audit Committee; Nominating Vice President and Treasurer and Governance Committee Anup Jain Robert Mehrabian Vice President, Strategic Planning Chairman, President and Chief Executive and Corporate Development Officer, Teledyne Technologies Incorporated Officers-Directors Compensation Committee; J. Craig Jordan Technology and Environment Committee Vice President, Human Resources Martin H. Richenhagen Charles F. Kahle II Chairman, President and Chief Executive Chief Technology Officer and Vice President, Officer, AGCO Corporation Research and Development, Coatings Audit Committee; Technology and Environment Committee 2011 PPG INDUSTRIES ANNUAL REPORT Robert Ripp *Member of the Executive Committee Chairman, Lightpath Technologies, Inc., and former Chairman and Chief Executive Officer, AMP Inc. Audit Committee; Officers-Directors Compensation Committee Thomas J. Usher Non-executive Chairman of the Board, Marathon Petroleum Corporation Officers-Directors Compensation Committee; Technology and Environment Committee David R. Whitwam Retired Chairman and Chief Executive Officer, Whirlpool Corporation Nominating and Governance Committee; This sheet is printed on Teslin® SP1000 Blue. Officers-Directors Compensation Committee 1
  4. 4. Letter from the Chairman I n 2011, PPG delivered record full-year earnings per share of $6.87. This represents an increase of 48 percent over 2010 and easily establishes a new record for the company. coatings manufacturing facility in Tianjin, China. We also announced four acquisitions: Equa-Chlor, a chlor-alkali producer in the western United States; Dyrup, a European Net income also was a record at $1.1 billion, an increase of architectural coatings and wood care business; Ducol, a 42 percent over last year. Earnings per share in each quarter South African automotive refinish company; and Colpisa, a of the year eclipsed prior quarter records by an average of Colombian automotive coatings producer. about 20 percent. And sales for the year were $14.9 billion, PPG maintained its long tradition of rewarding an increase of 11 percent over 2010. shareholders in 2011 by returning $1.2 billion, or about 85 This strong performance was achieved despite global percent of the cash we generated from operations, in the growth rates that were uneven by region and varied by form of dividends and share repurchases. We are proud to industry. More importantly, these results demonstrate that have paid uninterrupted annual dividends since 1899, and our mission to continue to be the world’s leading coatings 2011 marked the 40th consecutive year that we increased and specialty products company, supported by our strategic our annual dividend payout. Additionally, the 10.2 million initiatives to pursue profitable growth and drive operational shares of PPG stock we repurchased for about $850 million excellence, is clearly yielding results. marked the highest annual level in the company’s history. Our actions to extend PPG’s geographic footprint and Notwithstanding this amplified level of cash deployment, broaden end-use market exposure contributed greatly we still ended the year with about $1.5 billion of cash and to our performance in 2011. We delivered double-digit short-term investments that will provide us with the strength percentage sales increases in each major global region. and flexibility to fund growth initiatives in 2012. PPG also posted higher earnings in each region on the In addition to our record financial performance, 2011 was strength of improved results in each of the company’s six an excellent year for PPG by nearly every other measure. reporting segments, including excellent performance in our True to our “Blueprint” values, we made significant progress businesses serving the aerospace, automotive and general on many of our ethics; environment, health and safety; and industrial market segments. community engagement programs. In 2011, we revised our During the year, PPG made progress toward many Global Code of Ethics to make it even stronger. For the of our strategic initiatives. As a result, PPG’s segment second consecutive year, we reduced our spill and release margins improved to 13.6 percent, up from 12.8 percent rate and maintained our low level of injuries and illnesses in 2010, and we maintained our margin leadership in the across the corporation. And, we expanded our community coatings industry. Each of our 13 business units delivered and social responsibility initiatives on a global scale. You can higher pricing, and we gained market share in several end- read more about this work in our Corporate Sustainability use markets by leveraging our leading technologies and Report Update, which will be published this April. customer service. This enabled us to counter the impact of Looking ahead, we anticipate a mixed economic persistent inflation in raw materials costs. We also reduced backdrop in 2012. We expect moderate strengthening our manufacturing costs during the year beyond the already in the U.S. economy supported by an enhanced global low cost structure we achieved by implementing our 2008 cost position in the industrial sector due to lower regional and 2009 restructuring programs. natural gas prices. The European region will likely remain We continued to strengthen our business both organically very challenging. In the aggregate, growth in the emerging and through acquisitions. Among other projects, we regions is expected to remain high compared to developed completed construction of a new resin manufacturing facility regions but more moderate and erratic than it has been in in Zhangjiagang, China, and expanded our waterborne the past. As we deal with these uncertainties, we intend to manage our businesses in the same proactive and disciplined manner we always have. We will continue to emphasize our principles of operational excellence and our legacy of ensuring that our cost structure is appropriate for end-market demand levels. We plan to implement price increases in many of our businesses to offset the cost inflation we have already absorbed in 2011. Finally, we aim to continue to prudently deploy our strong cash position toward earnings accretion and rewarding shareholders, and we are targeting to end 2012 with a cash balance of less than $1 billion. Like most years, 2012 will present unanticipated challenges. However, given our strong performance over2011 PPG INDUSTRIES ANNUAL REPORT the past several years, I’m confident that our strategy and execution remain sound and will enable us not only to overcome these obstacles but to continue to create value for our shareholders. Charles E. Bunch Chairman and Chief Executive Officer 2
  5. 5. UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2011 Commission File Number 1-1687 PPG INDUSTRIES, INC. (Exact name of registrant as specified in its charter) Pennsylvania 25-0730780 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) One PPG Place, Pittsburgh, Pennsylvania 15272 (Address of principal executive offices) (Zip code) Registrant’s telephone number, including area code: 412-434-3131 Securities Registered Pursuant to Section 12(b) of the Act: Name of each exchange on Title of each class which registered Common Stock – Par Value $1.66 2⁄ 3 New York Stock Exchange Securities Registered Pursuant to Section 12(g) of the Act: NoneIndicate by check mark if the Registrant is a well-known seasoned issuer as defined in Rule 405 of the SecuritiesAct. YES È NO ‘Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of theAct. YES ‘ NO ÈIndicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirementsfor the past 90 days. YES È NO ‘Indicate by checkmark whether the registrant has submitted electronically and posted on its corporate web site, if any,every Interactive Date File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of thischapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and postsuch files). YES È NO ‘Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein,and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statementsincorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ‘Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or asmaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reportingcompany” in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer È Accelerated filer ‘ Non-accelerated filer ‘ Smaller reporting company ‘ (Do not check if a smaller reporting company)Indicate by check mark whether the Registrant is a shell company (as defined by Rule 12b-2 of theAct). YES ‘ NO ÈThe aggregate market value of common stock held by non-affiliates as of June 30, 2011, was $14,069 million.As of January 31, 2012, 152,007,747 shares of the Registrant’s common stock, with a par value of $1.66 2⁄ 3 per share,were outstanding. As of that date, the aggregate market value of common stock held by non-affiliates was $13,580million. DOCUMENTS INCORPORATED BY REFERENCE Incorporated By Document Reference In Part No.Portions of PPG Industries, Inc. Proxy Statement for its 2012 Annual Meeting of Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III 2011 PPG ANNUAL REPORT AND FORM 10-K 3
  6. 6. PPG INDUSTRIES, INC. AND CONSOLIDATED SUBSIDIARIES As used in this report, the terms “PPG,” “Company,” “Registrant,” “we,” “us” and “our” refer to PPG Industries, Inc., and its subsidiaries, taken as a whole, unless the context indicates otherwise. TABLE OF CONTENTS Page Part I Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Item 1A. Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Item 1B. Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Part II Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . 17 Item 7A. Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure . . . . . . . . 74 Item 9A. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 Item 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 Part III Item 10. Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 Item 13. Certain Relationships and Related Transactions, and Director Independence . . . . . . . . . . . . . . . . . . . . 75 Item 14. Principal Accounting Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 Part IV Item 15. Exhibits, Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80 Note on Incorporation by Reference Throughout this report, various information and data are incorporated by reference from the Company’s 2011 Annual Report (hereinafter referred to as “the Annual Report”). Any reference in this report to disclosures in the Annual Report shall constitute incorporation by reference only of that specific information and data into this Form 10-K.4 2011 PPG ANNUAL REPORT AND FORM 10-K
  7. 7. Part I The aerospace coatings business supplies sealants,Item 1. Business coatings, technical cleaners and transparencies for commercial, military, regional jet and general aviation PPG Industries, Inc., incorporated in Pennsylvania in aircraft and transparent armor for military land vehicles.1883, is comprised of six reportable business segments: PPG supplies products to aircraft manufacturers andPerformance Coatings, Industrial Coatings, Architectural maintenance and aftermarket customers around the worldCoatings – EMEA (Europe, Middle East and Africa), both on a direct basis and through a company-ownedOptical and Specialty Materials, Commodity Chemicals distribution network.and Glass. Each of the business segments in which PPG isengaged is highly competitive. The diversification of The protective and marine coatings business suppliesproduct lines and worldwide markets served tend to coatings and finishes for the protection of metals andminimize the impact on PPG’s total sales and earnings structures to metal fabricators, heavy duty maintenancefrom changes in demand for a particular product line or contractors and manufacturers of ships, bridges, rail carsin a particular geographic area. Refer to Note 24, and shipping containers. These products are sold through“Reportable Business Segment Information” under Item 8 the company-owned architectural coatings stores,of this Form 10-K for financial information relating to our independent distributors and directly to customers.reportable business segments. Product performance, technology, quality,Performance Coatings, Industrial Coatings and distribution and technical and customer service are majorArchitectural Coatings – EMEA competitive factors in these three coatings businesses. PPG is a major global supplier of protective and The architectural coatings-Americas and Asia Pacificdecorative coatings. The Performance Coatings, Industrial business primarily produces coatings used by paintingCoatings and Architectural Coatings – EMEA reportable and maintenance contractors and by consumers forsegments supply protective and decorative finishes for decoration and maintenance of residential andcustomers in a wide array of end use markets, including commercial building structures. These coatings are soldindustrial equipment, appliances and packaging; factory- under a number of brands. Architectural coatings –finished aluminum extrusions and steel and aluminum Americas and Asia Pacific products are sold through acoils; marine and aircraft equipment; automotive original combination of company-owned stores, home centers,equipment; and other industrial and consumer products. paint dealers, and independent distributors and directly toIn addition to supplying finishes to the automotive customers. Price, product performance, quality,original equipment market (“OEM”), PPG supplies distribution and brand recognition are key competitiverefinishes to the automotive aftermarket. PPG also serves factors for these architectural coatings businesses. Thecommercial and residential new build and maintenance architectural coatings-Americas and Asia Pacific businessmarkets by supplying coatings to painting and operates about 400 company-owned stores in Northmaintenance contractors and directly to consumers for America and about 40 company-owned stores indecoration and maintenance. The coatings industry is Australia.highly competitive and consists of a few large firms with The major global competitors of the Performanceglobal presence and many smaller firms serving local or Coatings reportable segment are Akzo Nobel N.V., BASFregional markets. PPG competes in its primary markets Corporation, E.I. duPont de Nemours and Company,with the world’s largest coatings companies, most of Hempel A/S, the Jotun Group, Masco Corporation, thewhich have global operations, and many smaller regional Sherwin-Williams Company, Valspar Corporation andcoatings companies. Product development, innovation, GKN plc. The average number of persons employed bycost effectiveness, distribution, quality and technical and the Performance Coatings reportable segment duringcustomer service have been stressed by PPG and have 2011 was about 12,100.been significant factors in developing an important The Industrial Coatings reportable segment issupplier position by PPG’s coatings businesses comprising comprised of the automotive OEM, industrial andthe Performance Coatings, Industrial Coatings and packaging coatings businesses. Industrial, automotiveArchitectural Coatings – EMEA reportable segments. OEM and packaging coatings are formulated specifically The Performance Coatings reportable segment is for the customers’ needs and application methods.comprised of the refinish, aerospace, protective and The industrial and automotive OEM coatingsmarine and architectural – Americas and Asia Pacific businesses sell directly to a variety of manufacturingcoatings businesses. companies. PPG also supplies adhesives and sealants for The refinish coatings business supplies coatings the automotive industry and metal pretreatments andproducts for automotive and commercial transport/fleet related chemicals for industrial and automotiverepair and refurbishing, light industrial coatings for a applications. PPG has established alliances with Kansaiwide array of markets and specialty coatings for signs. Paint, Helios Group and Asian Paints Ltd. to serve certainThese products are sold primarily through independent automotive original equipment manufacturers in variousdistributors. regions of the world. PPG owns a 60% interest in PPG 2011 PPG ANNUAL REPORT AND FORM 10-K 5
  8. 8. Kansai Finishes to serve Japanese-based automotive OEM e-passports, drivers’ licenses and identification cards. customers in North America and Europe. PPG owns a Transitions® lenses are processed and distributed by PPG’s 60% interest in PPG Helios Ltd. to serve Russian-based 51%-owned joint venture with Essilor International. In automotive OEM customers in Russia and the Ukraine. the Optical and Specialty Materials businesses, product PPG and Asian Paints currently each own a 50% interest quality and performance, branding, distribution and in Asian PPG Paints to serve global and domestic-based technical service are the most critical competitive factors. automotive OEM customers in India. In 2011, PPG The major global competitors of the Optical and Specialty announced that it plans to expand the current Asian Materials reportable segment are Vision-Ease Lens, Carl Paints joint venture to also create a second 50-50 joint Zeiss AG, Corning, Inc., Hoya Corporation, Mitsui venture with Asian Paints. The current joint venture will Chemicals, Inc., Rhodia, S.A., J.M. Huber and Evonik expand its scope to serve India’s industrial liquid, marine Industries, A.G. The average number of persons employed and consumer packaging coatings markets. The new by the Optical and Specialty Materials reportable business venture will serve the protective, industrial powder, segment during 2011 was about 2,800. industrial containers and light industrial coatings Commodity Chemicals markets. These transactions are subject to Indian regulatory approvals and are expected to be completed PPG is a producer and supplier of basic chemicals. The during 2012. PPG and Asian Paints have agreed that PPG Commodity Chemicals reportable segment produces chlor- will control the existing expanded joint venture and Asian alkali and derivative products, including chlorine, caustic Paints will control the new joint venture. soda, vinyl chloride monomer, chlorinated solvents, calcium The packaging coatings business supplies coatings hypochlorite, ethylene dichloride, hydrochloric acid and and inks to the manufacturers of aerosol, food and phosgene derivatives. Most of these products are sold beverage containers. directly to manufacturing companies in the chemical processing, plastics, including polyvinyl chloride (“PVC”), Product performance, technology, cost effectiveness, paper, minerals, metals and water treatment industries. PPG quality and technical and customer service are major competes with seven other major producers of chlor-alkali competitive factors in the industrial coatings businesses. products, including The Dow Chemical Company, Formosa The major global competitors of the Industrial Coatings Plastics Corporation, U.S.A., Georgia Gulf Corporation, reportable segment are Akzo Nobel N.V., BASF Occidental Chemical Corporation, Olin Corporation, Corporation, the E.I. duPont de Nemours and Company, Shintech, Inc and Westlake Chemical Corporation. Price, Valspar Corporation and Nippon Paint. The average product availability, product quality and customer service number of persons employed by the Industrial Coatings are the key competitive factors. The average number of reportable segment during 2011 was about 8,000. persons employed by the Commodity Chemicals reportable The Architectural Coatings – EMEA business supplies a business segment during 2011 was about 2,000. variety of coatings under a number of brands and purchased Glass sundries to painting contractors and consumers in Europe, the Middle East and Africa. Architectural Coatings – EMEA The Glass reportable business segment is comprised products are sold through a combination of about 650 of the flat glass and fiber glass businesses. PPG is a company-owned stores, home centers, paint dealers, and producer of flat glass in North America and a global independent distributors and directly to customers. Price, producer of continuous-strand fiber glass. PPG’s major product performance, quality, distribution and brand markets are commercial and residential construction and recognition are key competitive factors for this business. The the wind energy, energy infrastructure, transportation and major competitors of the Architectural Coatings – EMEA electronics industries. Most glass products are sold reportable segment are Akzo Nobel N.V. and Materis Paints. directly to manufacturing companies. PPG manufactures The average number of persons employed by the flat glass by the float process and fiber glass by the Architectural Coatings – EMEA reportable segment during continuous-strand process. 2011 was about 7,900. The bases for competition in the Glass businesses are Optical and Specialty Materials price, quality, technology and customer service. The Company competes with four major producers of flat PPG’s Optical and Specialty Materials reportable glass, including Asahi Glass Company, Cardinal Glass segment is comprised of the optical products and silicas Industries, Guardian Industries and NSG Pilkington, and businesses. The primary Optical and Specialty Materials eight major producers of fiber glass throughout the world, products are Transitions® lenses, optical lens materials including Owens Corning-Vetrotex, Jushi Group, Johns and high performance sunlenses; amorphous precipitated Manville Corporation, CPIC Fiberglass, AGY, NEG, 3B silicas for tire, battery separator and other end-use and Taishan Fiberglass. The average number of persons markets; and Teslin® substrate used in such applications employed by the Glass reportable business segment as radio frequency identification (RFID) tags and labels, during 2011 was about 3,200.6 2011 PPG ANNUAL REPORT AND FORM 10-K
  9. 9. Raw Materials and Energy These initiatives include reformulation of our products using both petroleum-derived and bio-based materials as The effective management of raw materials and part of a product renewal strategy, qualifying multiple andenergy is important to PPG’s continued success. The local sources of supply, including suppliers from Asia andCompany’s most significant raw materials are epoxy and other lower cost regions of the world. The Company alsoother resins, titanium dioxide and other pigments, and has undertaken a strategic initiative with multiple globalsolvents in the Coatings businesses; lenses, sand and soda suppliers to secure and enhance PPG’s supply of titaniumash in the Optical and Specialty Materials segment; brine dioxide, as well as to add to the global supply of this rawand ethylene in the Commodity Chemicals segment; and material. PPG possesses intellectual property andsand, clay and soda ash in the Glass segment. Many raw expertise in the production and finishing of titaniummaterial prices began to inflate during 2010, which dioxide pigment and we intend to leverage this andcontinued through the majority of 2011, reflecting engage potential partners to develop innovative supplyrecovering economic demand and decreased supply solutions through technical collaborations, joint ventures,stemming from capacity idled or closed during the licensing or other commercial initiatives.recession. Also, adverse effects of supplier disruptions due We are subject to existing and evolving standardsto natural disasters placed additional pressure on some of relating to the registration of chemicals that impact or couldour supply chains leading to higher prices. potentially impact the availability and viability of some of the Coatings raw materials include both organic, raw materials we use in our production processes. Ourprimarily petroleum based, and inorganic materials and ongoing global product stewardship efforts are directed atgenerally comprise 70-to-80 percent of cost of goods sold maintaining our compliance with these standards.in most coatings formulations and represent PPG’s single In December 2006, the European Union (“EU”)largest production cost component. In 2011, overall member states adopted new comprehensive chemicalcoatings raw materials costs inflated by approximately management legislation known as “REACH”10-to-12 percent for the Company. The largest inflation (Registration, Evaluation, and Authorization ofimpacts were from titanium dioxide pigments and certain Chemicals). REACH applies to all chemical substancespropylene-based resins. During 2011, the incremental manufactured or imported into the EU in quantities ofcost of coatings raw materials due to inflation was one metric ton or more annually and will require theapproximately $440 million. This compares to inflation of registration of approximately 30,000 chemical substancesapproximately $210 million in 2010 and a benefit of with the European Chemicals Agency. PPG met the$150 million in 2009 reflecting a drop in overall requirements for pre-registration of such chemicals thatcommodity prices due to the recession. ended on December 1, 2008. Additionally, REACH Energy is a significant production cost in the requires the registration of these substances, entailing theCommodity Chemicals and Glass segments, and our filing of extensive data on their potential risks to humanprimary energy cost is natural gas. PPG purchases 60-to-70 health and the environment. Registration activities aretrillion British Thermal Units (BTUs) of natural gas each occurring in three phases over an 11-year period, basedyear. Inclusive of the impact of PPG’s natural gas hedging on tonnage and level of concern. The first registrationactivities, PPG’s 2011 natural gas unit cost decreased 15 deadline was December 1, 2010. Subsequent phases endpercent in the U.S. compared to 2010, reflecting higher in 2013 and 2018. In the case of chemicals with a highnatural gas supply stemming from the success of shale gas level of concern, the regulation calls for progressivedrilling. In our Commodity Chemicals business, the substitution unless no alternative can be found; in thesepositive impact of the lower natural gas prices was partially cases, authorization of the chemicals will be required.offset by an increase in ethylene prices. During 2011, PPG’s PPG established a dedicated organization to managecosts for ethylene increased substantially compared to 2010 REACH implementation. We have continued to reviewdriven by a combination of tight supply due to production our product portfolio, worked closely with our suppliersoutages and increased global demand, particularly in U.S. to assure their commitment to register substances in ourexports of ethylene derivative products. key raw materials and started registration of substances that PPG manufactures or imports as raw materials. We Most of the raw materials and energy used in will continue to work with our suppliers to understandproduction are purchased from outside sources, and the the future availability and viability of the raw materials weCompany has made, and plans to continue to make, use in our production processes.supply arrangements to meet the planned operatingrequirements for the future. Supply of critical raw Compliance with the REACH legislation will result inmaterials and energy is managed by establishing contracts, increased costs related to the registration process, productmultiple sources, and identifying alternative materials or testing and reformulation, risk characterization andtechnology whenever possible. The Company is participation in Substance Information Exchange Forumscontinuing its aggressive sourcing initiatives to support its (“SIEFs”) required to coordinate registration dossiercontinuous efforts to find the lowest raw material costs. preparation. PPG identified 10 substances that required 2011 PPG ANNUAL REPORT AND FORM 10-K 7
  10. 10. registration in 2010 and engaged with other key materially dependent upon any single patent or group of companies through SIEFs to develop the required related patents. PPG earned $55 million in 2011, $58 registration dossiers. Actual costs for substance million in 2010 and $45 million in 2009 from royalties registration were not significant in 2010 or 2011, due and the sale of technical know-how. primarily to fewer substances requiring registration than Backlog originally anticipated. The costs for 2013 and 2018 registrations and potential additional future testing in In general, PPG does not manufacture its products support of 2010 registrations are currently unclear; against a backlog of orders. Production and inventory however, our current estimate of the total spend during levels are geared primarily to projections of future 2012-2018 is in the range of $10 million to $25 million. demand and the level of incoming orders. We anticipate that some current raw materials and products will be subject to the REACH authorization Non-U.S. Operations process and believe that we will be able to demonstrate PPG has a significant investment in non-U.S. adequate risk management for the use and application of the majority of such substances. operations. This broad geographic footprint serves to lessen the significance of economic impacts occurring in any one Changes to chemical control regulations have been region. As a result of our expansion outside the U.S., we are proposed or implemented in many countries beyond the subject to certain inherent risks, including economic and EU, including China, Canada, the United States, and political conditions in international markets and Korea. Because implementation of many of these fluctuations in foreign currency exchange rates. programs have not been finalized, the financial impact can not be estimated at this time. We anticipate chemical Our sales generated by products sold in the developed control regulations will continue to increase globally, and and emerging regions of the world over the past three we have implemented programs to track and comply with years are summarized below: the regulations. (millions) Sales 2011 2010 2009 Research and Development United States, Canada, Western Europe $10,844 $ 9,837 $ 9,252 Technology innovation has been a hallmark of PPG’s Latin America, Eastern Europe, Middle success throughout its history. Research and development East, Africa, Asia Pacific 4,041 3,586 2,987 costs, including depreciation of research facilities, were Total $14,885 $13,423 $12,239 $445 million, $408 million and $403 million during 2011, 2010 and 2009, respectively. These costs totaled Seasonality approximately 3% of sales in each year of the period from PPG’s earnings are typically greater in the second and 2009 to 2011. PPG owns and operates several facilities to third quarters and cash flow from operations is greatest in conduct research and development relating to new and the fourth quarter due to end-use market seasonality, improved products and processes. Additional process and primarily in PPG’s architectural coatings businesses. product research and development work is also undertaken Demand for PPG’s architectural coatings products is at many of the Company’s manufacturing plants. As part of typically strongest in the second and third quarters due to our ongoing efforts to manage our formulations and raw higher home improvement, maintenance and construction material costs effectively, we operate a global competitive activity during the spring and summer months in North sourcing laboratory in China. We have obtained America and Europe. This higher activity level results in government funding of a small portion of the Company’s higher outstanding receivables that are collected in the research efforts, and we will continue to pursue fourth quarter generating higher fourth quarter cash flow. government funding. Because of the Company’s broad array of products and customers, PPG is not materially Employee Relations dependent upon any single technology platform. The average number of persons employed worldwide by PPG at December 31, 2011 was 38,400. The Company The Company seeks to optimize its investment in has numerous collective bargaining agreements research and development to create new products to drive throughout the world. While we have experienced profitable growth. We align our product development occasional work stoppages as a result of the collective with the macro trends in the end-use markets we serve bargaining process and may experience some work and leverage core technology platforms to develop stoppages in the future, we believe we will be able to products for unmet market needs. Our history of negotiate all labor agreements on satisfactory terms. To successful technology introductions is based on a commitment to an efficient and effective innovation date, these work stoppages have not had a significant process and disciplined portfolio management. impact on PPG’s operating results. Overall, the Company believes it has good relationships with its employees. Patents Environmental Matters PPG considers patent protection to be important. The PPG is subject to existing and evolving standards Company’s reportable business segments are not relating to protection of the environment. Capital8 2011 PPG ANNUAL REPORT AND FORM 10-K
  11. 11. expenditures for environmental control projects were $15 respectively. Cash outlays related to such environmentalmillion, $16 million and $27 million in 2011, 2010 and remediation aggregated $59 million, $34 million and $242009, respectively. It is expected that expenditures for million in 2011, 2010 and 2009, respectively. The impactsuch projects in 2012 will be in the range of $15 – $20 of foreign currency translation decreased the liability bymillion. Although future capital expenditures are difficult $3 million in 2011 and decreased the liability by $2to estimate accurately because of constantly changing million in 2010. Environmental remediation of a formerregulatory standards and policies, it can be anticipated chromium manufacturing plant site and associated sites inthat environmental control standards will become Jersey City, N.J. (which we refer to as “New Jerseyincreasingly stringent and the cost of compliance will Chrome”) represents the major part of our existingincrease. reserves. Included in the amounts mentioned above were In March of 2011, the United States Environmental $129 million and $168 million in reserves atProtection Agency (“USEPA”) proposed amendments to December 31, 2011 and 2010, respectively, associatedthe national emission standards for hazardous air with all New Jersey chromium sites.pollutants for mercury emissions from mercury cell chlor- The Company’s experience to date regardingalkali plants known as Mercury Maximum Achievable environmental matters leads it to believe that it will haveControl Technology (“Mercury MACT”). The USEPA is continuing expenditures for compliance with provisionsprojecting that it will finalize this rule in September 2012. regulating the protection of the environment and forPPG currently operates one remaining 200 ton-per-day present and future remediation efforts at waste and plantmercury cell production unit at its Natrium, W.Va. sites. Management anticipates that such expenditures willfacility. This unit constitutes approximately 4% of PPG’s occur over an extended period of time.total chlor-alkali production capacity. PPG has made anapplication to the Ohio River Valley Water Sanitation The Company’s continuing efforts to analyze andCommission (“ORSANCO”) for a variance from the assess the environmental issues associated with Newmixing zone prohibition in Section VI G of the Pollution Jersey Chrome and the Calcasieu River Estuary locatedControl Standards, which are to become effective in near our Lake Charles, La. chlor-alkali plant resulted in aOctober 2013. PPG has requested continued use of a pre-tax charge of $173 million in the third quarter ofmixing zone for mercury through the life of the current 2006 for the estimated costs of remediating these sites.permit, which is valid through January 2014 and for any These charges for estimated environmental remediationsubsequent permit. There are on-going discussions with costs in 2006 were significantly higher than PPG’sORSANCO, and PPG expects a decision by the full historical range. Excluding 2006, pre-tax charges againstcommission in 2012. Alternative strategies are under income for environmental remediation have rangedconsideration to enable the Natrium, W.Va. facility to between $10 million and $35 million per year for the pastoperate the mercury production unit in compliance with 15 years. Changes in 2012 may again be above thisthe new standards if this request for a variance is denied. historical range as information is being generated from the continuing remedial investigation activities related to PPG is negotiating with various government agencies New Jersey Chrome that will be incorporated into a finalconcerning 103 current and former manufacturing sites remedial action work plan to be submitted in mid-2012,and offsite waste disposal locations, including 20 sites on which may result in an increase the existing reserve. Inthe National Priority List. While PPG is not generally a addition to the amounts currently reserved, we may bemajor contributor of wastes to these offsite waste disposal subject to loss contingencies related to environmentallocations, each potentially responsible party may face matters estimated to be as much as $200 million to $400governmental agency assertions of joint and several million. Such unreserved losses are reasonably possibleliability. Generally, however, a final allocation of costs is but are not currently considered to be probable ofmade based on relative contributions of wastes to the site. occurrence. This range of reasonably possible unreservedThere is a wide range of cost estimates for cleanup of losses relate to environmental matters at a number ofthese sites, due largely to uncertainties as to the nature sites; however, about 50 percent of this range relates toand extent of their condition and the methods that may additional costs at New Jersey Chrome, about 25 percenthave to be employed for their remediation. The Company relates to the Calcasieu River Estuary and three operatinghas established reserves for onsite and offsite remediation PPG plant sites in the Company’s chemicals businesses,of those sites where it is probable that a liability has been and the remaining 25 percent relates to a number of otherincurred and the amount can be reasonably estimated. As sites, including legacy glass manufacturing sites. The lossof December 31, 2011 and 2010, PPG had reserves for contingencies related to these sites include significantestimated environmental remediation costs totaling $226 unresolved issues such as the nature and extent ofmillion and $272 million, respectively, of which $59 contamination at these sites and the methods that maymillion and $83 million, respectively, were classified as have to be employed to remediate them.current liabilities. Pretax charges against income forenvironmental remediation costs in 2011, 2010 and 2009 In management’s opinion, the Company operates intotaled $16 million, $21 million and $11 million, an environmentally sound manner, is well positioned, 2011 PPG ANNUAL REPORT AND FORM 10-K 9
  12. 12. relative to environmental matters, within the industries in announced its decision to disband its own voluntary which it operates and the outcome of these environmental Climate Leaders program, of which PPG had been a contingencies will not have a material adverse effect on member. PPG has, and will continue to, annually report PPG’s financial position or liquidity; however, any such our global GHG emissions to the voluntary Carbon outcome may be material to the results of operations of Disclosure project. any particular period in which costs, if any, are Energy prices and availability of supply continue to recognized. See Note 15, “Commitments and Contingent be a concern for major energy users. Since PPG’s GHG Liabilities,” under Item 8 of this Form 10-K for additional emissions arise principally from combustion of fossil information related to environmental matters and our fuels, PPG has for some time recognized the desirability of accrued liability for estimated environmental remediation reducing energy consumption and GHG generation. In costs. 2007, PPG announced corporate targets, namely (i) a Public and governmental concerns related to climate reduction in energy intensity by 25% from 2006 to 2016 change continue to grow, leading to efforts to limit the and (ii) a 10% absolute reduction in GHG emissions from greenhouse gas (“GHG”) emissions believed to be 2006 to 2011. Effective energy management practices led responsible. These concerns were reflected in the 2005 to a four percent decline in PPG’s GHG emissions. While framework for GHG reduction under the Kyoto Protocol to PPG fell short of its goal of reducing GHG emissions by the United Nations Framework Convention on Climate 10 percent, the Company continues to work toward this Change (“UNFCCC”). The Kyoto Protocol was adopted by long-term goal. PPG participates in the U.S. Department many countries where PPG operates, including the European of Energy (“DOE”) Save Energy Now LEADER Program Union and Canada, though not by the U.S. The European reinforcing the company’s voluntary efforts to Union implemented a cap and trade approach with a significantly reduce its industrial energy intensity. In mandatory emissions trading scheme for GHGs. The recent September 2011, the DOE changed its approach to energy 2011 UNFCC Climate Change Conference in Durban, South efficiency in the industrial sector and initiated the Better Africa resulted in the first agreement that includes both Buildings, Better Plants program. PPG is currently developed and developing (China and India) countries. The participating in this new program, which sets energy parties, including the U.S., Britain, China and India agreed to savings targets and provides a suite of educational, adopt, by 2015, a universal legal agreement to cut carbon training, and technical resources to help meet those emissions. While PPG has operations in many of these targets. Recognizing the continuing importance of this countries, a substantial portion of PPG’s GHG emissions are matter, PPG has a senior management group with a generated by locations in the U.S., where considerable mandate to guide the Company’s progress in this area. legislative and regulatory activity has been taking place. In March of 2011 the USEPA issued Clean Air Act As a result of a U.S. Supreme Court ruling in April emissions standards for large and small boilers and 2007 declaring that GHGs are air pollutants covered by the incinerators that burn solid waste known as the Boiler Clean Air Act, USEPA proposed and later finalized in Maximum Achievable Control Technology (“Boiler December 2009 an Endangerment Finding that GHG MACT”) regulations. These regulations are aimed at emissions “threaten public health and welfare of current controlling emissions of air toxics. As a result of numerous and future generations”. Based on the Endangerment petitions from both industry and environmental groups, Finding, the USEPA proposed then finalized new, USEPA was required to reconsider their March 2011 final “tailored” thresholds for GHG emissions that define when rule. On December 23, 2011 the USEPA’s Proposed Rule Clean Air Act New Source Review and title V operating reconsidering the Boiler MACT regulations was published permit programs would be required for new or existing in the Federal Register. USEPA has indicated its intent to industrial facilities. These rules impose new permit issue the final regulations in early 2012 requiring that requirements on PPG facilities emitting more than 100,000 covered facilities achieve compliance within three years. tons of GHGs per year as well as on new equipment There are 11 PPG facilities that will likely be subject to installations that will emit more than 75,000 tons of GHGs these regulations, with the 115 megawatt coal fired power per year. The U.S. federal government has committed to a plant at PPG’s Natrium, W.Va. facility being the most 17% economy-wide emission reduction target below 2005 significantly impacted. PPG continues to evaluate levels by 2020. The potential impact on PPG of the alternative paths of either retrofitting the Natrium boilers implementation of these requirements will not be known to burn natural gas or to engineer and install pollution until related guidelines are proposed and finalized. control equipment. The estimated potential cost for these capital improvements at our Natrium facility could be in With the enactment of USEPA’s own GHG reporting, the $15-$20 million range. The cost impact for the other verification, and permitting regulations, PPG made the affected facilities is not currently known, but is expected to decision to withdraw from the U.S.-based Climate be of a lesser magnitude. Registry reporting program. With formal regulations in place, PPG no longer saw sufficient value in continuing to PPG’s public disclosure on energy security and belong to this voluntary program. Also in 2010, USEPA climate change can be viewed in our Sustainability Report10 2011 PPG ANNUAL REPORT AND FORM 10-K
  13. 13. www.ppg.com/sustainability or at the Carbon Disclosure coatings raw material costs inflated by approximately 10-Project www.cdproject.net. to-12 percent for the Company. The largest inflationAvailable Information impacts were from titanium dioxide pigments and certain propylene-based resins. During 2011, the incremental The Company’s website address is www.ppg.com. The cost of coatings raw materials due to inflation wasCompany posts, and shareholders may access without approximately $440 million. This compares to coatingscharge, the Company’s recent filings and any amendments raw material inflation of approximately $210 million inthereto of its annual reports on Form 10-K, quarterly reports 2010 and a benefit of $150 million in 2009 from loweron Form 10-Q and its proxy statements as soon as coatings raw material prices reflecting a drop in overallreasonably practicable after such reports are filed with the commodity prices due to the recession.Securities and Exchange Commission (“SEC”). TheCompany also posts all financial press releases and earnings We also import raw materials and intermediates,releases to its website. All other reports filed or furnished to particularly for use at our manufacturing facilities in thethe SEC, including reports on Form 8-K, are available via emerging regions of the world. In most cases, thosedirect link on PPG’s website to the SEC’s website, imports are priced in the currency of the supplier and,www.sec.gov. Reference to the Company’s and SEC’s websites therefore, if that currency strengthens against theherein does not incorporate by reference any information currency of our manufacturing facility, our margins are atcontained on those websites and such information should risk of being lowered.not be considered part of this Form 10-K. Most of the raw materials and energy used inItem 1A. Risk Factors production are purchased from outside sources, and the Company has made, and plans to continue to make, supply As a global manufacturer of coatings, chemicals and arrangements to meet the planned operating requirementsglass products, we operate in a business environment that for the future. Supply of critical raw materials and energy isincludes risks. These risks are not unlike the risks we managed by establishing contracts, multiple sources, andhave faced in the recent past nor are they unlike risks identifying alternative materials or technology whenever possible. The Company is continuing its aggressivefaced by our competitors. Each of the risks described in sourcing initiatives to support its continuous efforts to findthis section could adversely affect our operating results, the lowest raw material costs. These initiatives includefinancial position and liquidity. While the factors listed reformulation of our products using both petroleum-here are considered to be the more significant factors, no derived and bio-based materials as part of a productsuch list should be considered to be a complete statement renewal strategy, qualifying multiple and local sources ofof all potential risks and uncertainties. Unlisted factors supply, including suppliers from Asia and other lower costmay present significant additional obstacles which may regions of the world, and strategic initiatives with multipleadversely affect our business. global suppliers to secure and enhance PPG’s supply of titanium dioxide and other materials.Increases in prices and declines in the availability of rawmaterials could negatively impact our financial results. An inability to obtain critical raw materials would Our financial results are significantly affected by the cost adversely impact our ability to produce products.of raw materials and energy, including natural gas. Energy is Increases in the cost of raw materials and energy maya significant production cost in the Commodity Chemicals have an adverse effect on our earnings or cash flow in theand Glass segments, and our primary energy cost is natural event we are unable to offset these higher costs in a timelygas. Each one-dollar change in our unit cost of natural gas manner.per million British Thermal Units has a direct impact of The pace of economic growth and level of uncertainty couldapproximately $60 million to $70 million on our annual have a negative impact on our results of operations andoperating costs. Inclusive of the impact of PPG’s natural gas cash flows.hedging activities, PPG’s 2011 natural gas unit cost During 2008, worldwide demand for many of ourdecreased 15 percent in the U.S. compared to 2010, products declined significantly as the impact of thereflecting higher natural gas supply stemming from the recession spread globally. Many global industrial end-usesuccess of shale gas drilling. Also, in our Commodity markets remained depressed for most of 2009. DuringChemicals segments, ethylene is a key raw material. During 2010, the global economy began to mend; however, the2011, PPG’s costs for ethylene increased substantially pace of recovery was uneven. Beginning in 2011, overallcompared to 2010 driven by a combination of tight supplies activity levels in most major global economies and indue to production outages and increased global demand, most end-use markets exhibited year-over-year growth.particularly in U.S. exports of ethylene derivative products. The North American economy experienced early overall improving industrial and chemical activity, particularly Coatings raw materials both organic, primarily solid improvement in automotive OEM production.petroleum based, and inorganic, generally comprise However, as the year progressed, factors such asbetween 70-to-80 percent of coatings cost of goods sold in unemployment rates, impasses on government policy andmost coatings formulations and represent PPG’s single concerns over the global economy limited the rate oflargest production cost component. In 2011, overall economic growth in this region. The European economy 2011 PPG ANNUAL REPORT AND FORM 10-K 11

×